Se Gyung Hi TechLtd (KOSDAQ:148150) Will Be Hoping To Turn Its Returns On Capital Around

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Se Gyung Hi TechLtd (KOSDAQ:148150) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Se Gyung Hi TechLtd, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.014 = ₩2.0b ÷ (₩208b - ₩66b) (Based on the trailing twelve months to December 2020).

Therefore, Se Gyung Hi TechLtd has an ROCE of 1.4%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 5.9%.

See our latest analysis for Se Gyung Hi TechLtd

In the above chart we have measured Se Gyung Hi TechLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Se Gyung Hi TechLtd's ROCE Trend?

When we looked at the ROCE trend at Se Gyung Hi TechLtd, we didn't gain much confidence. Over the last two years, returns on capital have decreased to 1.4% from 43% two years ago. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

Our Take On Se Gyung Hi TechLtd's ROCE

In summary, we're somewhat concerned by Se Gyung Hi TechLtd's diminishing returns on increasing amounts of capital. Long term shareholders who've owned the stock over the last year have experienced a 20% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

While Se Gyung Hi TechLtd doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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